California BanCorp CA

Previous wording

California BanCorp, formerly know as Southern California Bancorp, is a California corporation incorporated on October 2, 2019, and headquartered in Del Mar, California. On May 15, 2020, we completed a reorganization whereby California Bank of Commerce, N.A., formerly known as Bank of Southern California, N.A., became the wholly owned subsidiary of the Company. California Bank of Commerce, N.A. has a wholly-owned subsidiary, BCAL OREO1, LLC, which was incorporated on February 14, 2024. BCAL OREO1, LLC is used for holding other real estate owned and other assets acquired by foreclosure. We are regulated as a bank holding company by the Board of Governors of the Federal Reserve System (“Federal Reserve”). The Bank operates under a national charter and is regulated by the Office of Comptroller of the Currency (“OCC”).

Current wording

California BanCorp, formerly known as Southern California Bancorp, is a California corporation incorporated on October 2, 2019, and headquartered in Del Mar, California. On May 15, 2020, we completed a reorganization whereby California Bank of Commerce, N.A., formerly known as Bank of Southern California, N.A., became the wholly owned subsidiary of the Company. California Bank of Commerce, N.A. has a wholly-owned subsidiary, BCAL OREO1, LLC, which was incorporated on February 14, 2024. BCAL OREO1, LLC is used for holding other real estate owned and other assets acquired by foreclosure. We are regulated as a bank holding company by the Board of Governors of the Federal Reserve System (“Federal Reserve”). The Bank operates under a national charter and is regulated by the Office of Comptroller of the Currency (“OCC”).

Previous wording

On July 31, 2024, the Company completed its all-stock merger with the former California BanCorp on the terms set forth in that certain Agreement and Plan of Merger and Reorganization, dated January 30, 2024, by and between Southern California Bancorp and California BanCorp. Immediately following the merger of the former California BanCorp with and into the Company, California Bank of Commerce, a California state-chartered bank and wholly-owned subsidiary of the former California BanCorp, merged with and into the California Bank of Commerce, N.A., formerly known as Bank of Southern California, N.A.. Effective with these mergers, the corporate names of Southern California Bancorp and Bank of Southern California, N.A. were changed to California BanCorp and California Bank of Commerce, N.A., respectively. The merger provides the Company with the opportunity to expand its footprint in Northern California providing opportunity for building scale and increasing market share through complementary business models with a strong deposit base. The combined company retains the banking offices of both banks, adding California Bank of Commerce’s one full-service bank branch and its four loan production offices in the Bay Area to the Bank’s 13 full-service bank branches located throughout the Southern California region.

Current wording

On July 31, 2024, the Company completed its all-stock merger with CALB on the terms set forth in the Agreement and Plan of Merger and Reorganization, dated January 30, 2024, by and between the Company and CALB. At July 31, 2024, CALB had total loans of $1.43 billion , total assets of $1.91 billion, and total deposits of $1.64 billion. Immediately following the merger of CALB with and into the Company, California Bank of Commerce, a California state-chartered bank and wholly-owned subsidiary of CALB, merged with and into the Bank. Effective with these mergers, the corporate names of Southern California Bancorp and Bank of Southern California, N.A. were changed to California BanCorp and California Bank of Commerce, N.A., respectively. The merger expands the Company’s footprint into Northern California and provides an opportunity for building scale and increasing market share through complementary business models with a strong deposit base. The combined company retained all banking offices of both banks, adding California Bank of Commerce’s one full-service bank branch and its four loan production offices in the Bay Area to the Bank’s 13 full-service bank branches located throughout the Southern California region.

Previous wording

Under the terms of the Agreement and Plan of Merger and Reorganization, each outstanding share of California BanCorp common stock was exchanged for the right to receive 1.590 shares of the Company’s common stock, resulting in the issuance of approximately 13,576,627 shares, with cash (without interest) paid in lieu of fractional shares. At June 30, 2024, California BanCorp had total loans of $1.49 billion, total assets of $1.92 billion, total deposits of $1.64 billion, and total equity of $195.5 million.

Current wording

Under the terms of the Agreement and Plan of Merger and Reorganization, each outstanding share of CALB common stock was exchanged for the right to receive 1.590 shares of the Company’s common stock, resulting in the net issuance of approximately 13,579,454 shares, with cash (without interest) paid in lieu of fractional shares and repurchase of shares for settlement of accelerated restricted stock units. Refer to Note 2 -Business Combinations of the Notes to Consolidated Financial Statements included in Part I -Financial

Previous wording

Impact of Federal Reserve Rapid Rate Hiking Cycle on Economy and Banking Industry

Current wording

Impact of Federal Reserve Rapid Rate Hiking Cycle on the Economy and Banking Industry

Previous wording

Between March 2022 and September 2023, the Federal Reserve raised interest rates eleven times by an aggregate of 525 basis points, to a range between 5.25% and 5.50%, the highest level in 22 years. The rapid rate hiking cycle was in response to an increase in inflation, as measured by the Consumer Price Index, from 1.2% in November 2020 to 9.1% in July 2022, which has since moderated to 3.0% in June 2024. In its July 2024 statement, the Federal Reserve noted the economy is moving closer to the point at which it will be appropriate to reduce the policy rate and Chairman Powell stated a reduction could come as soon as the FOMC meeting in September 2024.

Current wording

Between March 2022 and September 2023, the Federal Reserve raised interest rates eleven times by an aggregate of 525 basis points, to a range between 5.25% and 5.50%, the highest level in 22 years. The rapid rate hiking cycle was in response to an increase in inflation, as measured by the Consumer Price Index, from 1.2% in November 2020 to 9.1% in July 2022, which has since moderated to 2.4% in September 2024. In its September 2024 meeting, the Federal Reserve reduced federal funds interest rates by 50 basis points to a target rate between 4.75% and 5.0%. In the statement issued after the meeting, the Federal Reserve noted it “has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance.”

Previous wording

Concerns regarding a potential recession have moderated with full year U.S. 2023 GDP reported at 2.5%, slowing to 1.3% in the first quarter of 2024 and rebounding to an advance estimate of 2.8% for the second quarter of 2024, with Moody’s full-year 2024 GDP forecast at 2.4%. California’s 2023 GDP increased by 2.1% from 2022 and it is forecast by Moody’s to increase by 2.1% in 2024; however, it slowed to 1.2% in the first quarter of 2024 and is forecast by Comerica Bank to decrease to 1.1% mid-year before rebounding to 1.5% in the fourth quarter of 2024. Despite the anticipated slowdown in California, it is still considered to have the fifth largest economy in the world. High interest rates and broader economic headwinds have put a damper on investment, particularly in the near term for the tech industry, which employs 8% of the state’s workforce, as tech payrolls have trended lower over the past year. The U.S. Bureau of Labor Statistics reports California’s June 2024 unemployment rate at 5.2%, down slightly from 5.3% in previous quarters.

Current wording

Concerns regarding a potential recession have moderated with full year U.S. 2023 GDP reported at 2.5%, slowing to 1.3% in the first quarter of 2024 and rebounding to 3.0% and 2.8% in the second and third quarters of 2024, respectively, with Moody’s full-year 2024 GDP growth forecast at 2.7%. California’s 2023 GDP increased by 2.1% from 2022 and it is forecast by Moody’s to decrease by 2.0% in 2024 and 1.3% in 2025. Despite the anticipated slowdown in California, it is still considered to have the fifth largest economy in the world. Higher interest rates and broader economic headwinds have put a damper on investment, particularly in the near term for the tech industry, which employs 8% of the state’s workforce, as tech payrolls have trended lower over the past year. The U.S. Bureau of Labor Statistics reports California’s September 2024 unemployment rate at 5.3%; it has been a range between 5.0% and 5.3% since September 2023.

Previous wording

The rapid rise in interest rates between 2022 and 2023 resulted in an industry-wide reduction in the fair value of many banks’ securities portfolios, pressuring their liquidity. The subsequent bank runs led to the failure of several financial institutions beginning in March of 2023 and the distress at New York Community Bank in early 2024, fostering a state of volatility and uncertainty with respect to the health of the U.S. banking system, particularly around liquidity, uninsured deposits and customer concentrations. The situation has stabilized due to strong actions taken by federal regulators in attempts to calm the markets.

Current wording

The rapid rise in interest rates between 2022 and 2023 resulted in an industry-wide reduction in the fair value of many banks’ securities portfolios, pressuring their liquidity. The subsequent bank runs led to the failure of several financial institutions beginning in March of 2023 and the distress at New York Community Bank in early 2024, fostering a state of volatility and uncertainty with respect to the health of the U.S. banking system, particularly around liquidity, uninsured deposits and customer concentrations. The situation has stabilized due to strong actions taken by federal regulators in attempts to calm the markets, coupled with the Federal Reserve’s initiation of reductions to the federal funds interest rate.

Previous wording

We have a strong consolidated balance sheet with diversified deposit and loan portfolios, with very little sector or individual customer concentration, other than our CRE concentration. Our relationship-based banking model is founded on strong, ongoing relationships with our commercial clients, which represent a broad variety of industries. The recent uncertainty in the banking industry has provided us with an opportunity to attract new clients that have concerns about the banks they have been doing business with, based on the above events. We have no meaningful exposure to cryptocurrency or venture capital business models, our accumulated other comprehensive loss on our available-for-sale debt securities is manageable, and our capital position is strong. However, in an abundance of caution, we proactively responded to these events by reaching out to our customers and explaining what differentiates us from the recently failed banks. We also have elected to vigorously defend our deposit base in the face of increasing competition and deposit costs by increasing the rates we pay on interest-bearing deposits.

Current wording

We have a strong consolidated balance sheet with diversified deposit and loan portfolios, with very little sector or individual customer concentration, other than our CRE concentration. Our relationship-based banking model is founded on strong, ongoing relationships with our commercial clients, which represent a broad variety of industries. The recent uncertainty in the banking industry has provided us with an opportunity to attract new clients that have concerns about the banks they have been doing business with, based on the above events. We have no meaningful exposure to cryptocurrency or venture capital business models, our accumulated other comprehensive loss on our available-for-sale debt securities is manageable, and our capital position is strong. We also have elected to vigorously defend our deposit base in the face of increasing competition and deposit costs by adjusting the rates we pay on interest-bearing deposits.

Previous wording

We have a highly skilled and experienced lending production team and credit administration team. Given our concentration in commercial real estate secured loans, we mitigate that risk through comprehensive underwriting policies, semi-annual loan level reviews, close monitoring of self-established industry and geographical and collateral type limits, periodic stress testing and continuous portfolio risk management reporting. Per the regulatory definition of commercial real estate, at June 30, 2024, our concentration of such loans represented 498% of our total risk-based capital. In addition, at June 30, 2024, total loans secured by commercial real estate under construction and land development represented 69% of our total risk-based capital. The non-performing loans for these segments per the regulatory definition of commercial real estate loans at June 30, 2024 were $4.7 million and there were $1.5 million charge-offs during the six months ended June 30, 2024. Our only OREO from a collateral-dependent commercial real estate loan was sold with a $4.8 million pre-tax loss recognized in the second quarter of 2024.

Current wording

We have a highly skilled and experienced lending production team and credit administration team. Given our concentration in commercial real estate secured loans, we mitigate that risk through comprehensive underwriting policies, semi-annual loan level reviews, close monitoring of self-established industry and geographical and collateral type limits, periodic stress testing and continuous portfolio risk management reporting. Per the regulatory definition of commercial real estate, at September 30, 2024, our concentration of such loans represented 479% of our total risk-based capital. In addition, at September 30, 2024, total loans secured by commercial real estate under construction and land development represented 51% of our total risk-based capital. The non-performing loans for these segments per the regulatory definition of commercial real estate loans at September 30, 2024 were $18.8 million and there were $2.4 million charge-offs during the nine months ended September 30, 2024. At September 30, 2024, our only OREO, carried at $4.1 million, was from a multifamily nonaccrual loan we foreclosed on in the third quarter of 2024.

Previous wording

Given the nature of our commercial banking business, approximately 44% of our total deposits exceeded the FDIC deposit insurance limits at June 30, 2024. However, we offer our deposit customers access to the Insured Cash Sweep (“ICS Product”), which allows us to divide customers’ deposits that exceed the FDIC insurance limits into smaller amounts, below the FDIC insurance limits, and place those deposits in other participating FDIC insured institutions with the convenience of managing all deposit accounts through our Bank. Our total deposits in the ICS Product decreased to $239.8 million, or 12% of total deposits at June 30, 2024, compared to $274.1 million, or 14% of total deposits at December 31, 2023.

Current wording

Given the nature of our commercial banking business, approximately 44% of our total deposits exceeded the FDIC deposit insurance limits at September 30, 2024. However, we offer our deposit customers access to the Certificate of Deposit Account Registry Service (“CDARS”), IntraFi Network Insured Cash Sweep (“ICS”), and Reich & Tang Deposit Solutions (“R&T”) networks. We receive an equal dollar amount of deposits (“reciprocal deposits”) from other participating banks in exchange for the deposits we place into the networks to fully qualify large customer deposits for FDIC insurance. These reciprocal deposits allow us to divide customers’ deposits that exceed the FDIC insurance limits into smaller amounts, below the FDIC insurance limits, and place those deposits in other participating FDIC insured institutions with the convenience of managing all deposit accounts through our Bank. These reciprocal deposits are not required to be treated as brokered deposits up to the lesser of 20% of the Bank’s total liabilities or $5 billion. Our total reciprocal deposits increased to $839.7 million, representing 22% of total deposits and 22% of Bank’s total liabilities at September 30, 2024, compared to $274.1 million, or 14% of total deposits at December 31, 2023. The excess over 20% increased our wholesale funding to total assets ratio and net non core funding dependence ratio. These two ratios were still within the Bank's internal policy limit. In connection with the Merger, the Company acquired $442.7 million in fair value of reciprocal deposits, of which included $98.4 million in ICS, $306.6 million in R&T and $37.7 in CDARS.

Previous wording

We have a small investment portfolio of high-quality securities. In 2022, we deployed our excess cash by purchasing held-to-maturity debt securities that are not marked to market, which means there is no unrealized loss recorded through the accumulated other comprehensive loss if their market value is impacted by changes in interest rates. We continue to reposition our debt securities mix to protect us from an unpredictable interest rate environment. At June 30, 2024, the amortized cost of our held-to-maturity debt securities was $53.4 million, or approximately 2.3% of total assets. The fair value of our available-for-sale debt securities was $123.7 million, or approximately 5.4% of total assets. The increases in the 10-Year Treasury Bond to nearly 5% in the second quarter, resulted in a higher net unrealized losses on our debt securities at June 30, 2024, but the 10-Year Treasury Bond has decreased to a lower 4% range in July 2024. At June 30, 2024, our accumulated other comprehensive loss, net of taxes, increased to $6.5 million, compared to $4.5 million at December 31, 2023. If we realized all of our unrealized losses on both held-to-maturity and available-for-sale debt securities, our losses, net of taxes would be $10.0 million at June 30, 2024. The results of our stress testing on our debt security portfolio at June 30, 2024, illustrated that our losses, net of taxes on both held-to-maturity and available-for-sale debt securities would increase to $40.0 million at 300 basis point rate shock scenario. If we realized all of these unrealized losses, the Bank would continue to exceed all regulatory capital requirements necessary to be considered well capitalized.

Current wording

We have a small investment portfolio of high-quality securities. In 2022, we deployed our excess cash by purchasing held-to-maturity debt securities that are not marked to market, which means there is no unrealized loss recorded through the accumulated other comprehensive loss if their market value is impacted by changes in interest rates. We continue to reposition our debt securities mix to protect us from an unpredictable interest rate environment. In connection with the Merger, our investment portfolio increased by $42.6 million, consisting primarily of treasury and mortgage-backed securities. At September 30, 2024, the amortized cost of our held-to-maturity debt securities was $53.4 million, or approximately 1.2% of total assets. The fair value of our available-for-sale debt securities was $159.3 million, or approximately 3.7% of total assets. The decreases in the 10-Year Treasury Bond to below 4% in the third quarter, resulted in a lower net unrealized losses on our debt securities at September 30, 2024. The 10-Year Treasury Bond was approximately 3.8% at the end of September 2024. At September 30, 2024, our accumulated other comprehensive loss, net of taxes, decreased to $2.9 million, compared to $4.5 million at December 31, 2023. If we realized all of our unrealized losses on both held-to-maturity and available-for-sale debt securities, our losses, net of taxes would be $5.6 million at September 30, 2024. The results of our stress testing on our debt security portfolio at September 30, 2024, illustrated that our losses, net of taxes on both held-to-maturity and available-for-sale debt securities would increase to $24.8 million in a 300 basis point rate increase shock scenario. If we realized all of these unrealized losses, the Bank would continue to exceed all regulatory capital requirements necessary to be considered well capitalized.

Previous wording

•Total cash and cash equivalents of approximately $104.7 million, compared to $86.8 million.

Current wording

•Total cash and cash equivalents of approximately $614.4 million, compared to $86.8 million.

Previous wording

•Total liquidity ratio of approximately 12.0%, compared to 11.1%.

Current wording

•Total liquidity ratio of approximately 21.0%, compared to 11.1%.

Previous wording

•Unpledged, liquid securities at fair value were approximately $123.7 million, compared to $130.0 million.

Current wording

•Unpledged, liquid securities at fair value were approximately $146.7 million, compared to $130.0 million.

Previous wording

•Available borrowing capacity from the Federal Home Loan Bank (“FHLB”) secured lines of credit of approximately $377.8 million, compared to $339.2 million. At June 30, 2024, we had overnight FHLB borrowings of $25.0 million.

Current wording

•Available borrowing capacity from the Federal Home Loan Bank (“FHLB”) secured lines of credit of approximately $663.6 million, compared to $339.2 million. At September 30, 2024, there were no overnight FHLB borrowings.

Previous wording

•Available borrowing capacity from the Federal Reserve Discount Window program was approximately $139.5 million, compared to $141.6 million. There were no outstanding borrowings under this program at June 30, 2024.

Current wording

•Available borrowing capacity from the Federal Reserve Discount Window program was approximately $446.4 million, compared to $141.6 million. There were no outstanding borrowings under this program at September 30, 2024.

Previous wording

•Available borrowing capacity from three unsecured credit lines from correspondent banks totaling $75.0 million at both period ends. There were no outstanding borrowings on these lines at June 30, 2024.

Current wording

•Available borrowing capacity from seven unsecured credit lines from correspondent banks totaling $113.5 million at both period ends. There were no outstanding borrowings on these lines at September 30, 2024.

Previous wording

•Total available borrowing capacity was approximately $592.3 million at June 30, 2024, compared to $555.8 million.

Current wording

•Total available borrowing capacity was approximately $1.22 billion at September 30, 2024, compared to $555.8 million.

Previous wording

•Total available liquidity was approximately $820.7 million at June 30, 2024.

Current wording

•Total available liquidity was approximately $1.98 billion at September 30, 2024.

Previous wording

•Cost savings being less than anticipated;

Current wording

•Merger cost savings being less than anticipated;

Previous wording

(1) Efficiency ratio is computed by dividing noninterest expense by total net interest income and noninterest income. We measure our success and the productivity of our operations through monitoring of the efficiency ratio. Adjusted noninterest expense is computed by adjusting noninterest expense for merger related expense adjustments for the period indicated. Adjusted efficiency ratio is computed by dividing adjusted noninterest expense by total net interest income and noninterest income.

Current wording

(1) Efficiency ratio is computed by dividing noninterest expense by total net interest income and noninterest income. We measure our success and the productivity of our operations through monitoring of the efficiency ratio. Adjusted noninterest expense is computed by adjusting noninterest expense for merger related expense for the period indicated. Adjusted efficiency ratio is computed by dividing adjusted noninterest expense by total net interest income and noninterest income.

Previous wording

(3) Adjusted net income is computed by adjusting net income for tax-effected merger related expense adjustments for the periods indicated.

Current wording

(3) Adjusted net (loss) income is computed by adjusting net (loss) income for the tax-effected one-time initial provision for credit losses related to non-purchased credit deteriorated (“non-PCD”) loans and unfunded loan commitments and tax-effected merger related expense adjustments for the periods indicated.

Previous wording

(4) Average tangible common equity is computed by subtracting goodwill and core intangible deposits, net, from average shareholders’ equity.

Current wording

(4) Average tangible common equity is computed by subtracting average goodwill and average core intangible deposits, (“net average intangible assets”), from average shareholders’ equity.

Previous wording

(6) Return on average tangible common equity is computed by dividing net income by average tangible common equity. It helps us measure our performance of businesses consistently, whether they were acquired or developed internally. Adjusted return on average tangible common equity is computed by dividing adjusted net income by average tangible common equity

Current wording

(6) Return on average tangible common equity is computed by dividing net (loss) income by average tangible common equity. Adjusted return on average tangible common equity is computed by dividing adjusted net income by average tangible common equity.

Previous wording

We consider average tangible common equity, tangible common equity, and tangible common equity to tangible asset ratio as useful additional methods to evaluate our capital utilization and adequacy to withstand unexpected market conditions. These ratios differ from the regulatory capital ratios principally in that the numerator excludes goodwill and other intangible assets.

Current wording

We consider average tangible common equity, tangible common equity, and the tangible common equity to tangible asset ratio as useful additional methods to evaluate our capital utilization and adequacy to withstand unexpected market conditions. These ratios differ from the regulatory capital ratios principally in that the numerator excludes goodwill and other intangible assets.

Previous wording

(1)Total loans are net of deferred loan origination fees/costs and discounts/premiums, and include average balances of loans held for sale and nonperforming loans. Interest income includes accretion of net deferred loan fees and net purchased discounts of $386 thousand, $604 thousand and $390 thousand for the three months ended June 30, 2024, March 31, 2024, and June 30, 2023, respectively.

Current wording

(1)Total loans are net of deferred loan origination fees/costs and discounts/premiums, and include average balances of loans held for sale and nonperforming loans. Interest income includes accretion of net deferred loan fees and net discounts on acquired loans of $4.7 million, $386 thousand and $550 thousand for the three months ended September 30, 2024, June 30, 2024, and September 30, 2023, respectively.

Previous wording

(3)Average noninterest-bearing deposits represent 34.05%, 34.35% and 41.27% of average total deposits for the three months ended June 30, 2024, March 31, 2024, and June 30, 2023, respectively.

Current wording

(3)Average noninterest-bearing deposits represent 33.61%, 34.05% and 38.77% of average total deposits for the three months ended September 30, 2024, June 30, 2024, and September 30, 2023, respectively.

Previous wording

(1)Total loans are net of deferred loan origination fees/costs and discounts/premiums, and include average balances of loans held for sale and nonperforming loans. Interest income includes accretion of net deferred loan fees and net purchased discounts of $990 thousand and $922 thousand for the six months ended June 30, 2024 and 2023, respectively.

Current wording

(1)Total loans are net of deferred loan origination fees/costs and discounts/premiums, and include average balances of loans held for sale and nonperforming loans. Interest income includes accretion of net deferred loan fees and net discounts on acquired loans of $5.6 million and $1.5 million for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

(3)Average noninterest-bearing deposits represent 34.20%, and 43.97% of average total deposits for the six months ended June 30, 2024 and 2023, respectively.

Current wording

(3)Average noninterest-bearing deposits represent 33.94%, and 42.20% of average total deposits for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Net interest income for the second quarter of 2024 was $21.0 million, compared with $20.5 million in the prior quarter. The increase in net interest income was primarily due to a $585 thousand increase in total interest and dividend income, offset by a $72 thousand increase in total interest expense in the second quarter of 2024 as compared to the prior quarter. During the second quarter of 2024, loan interest income increased $473 thousand, total debt securities income increased $16 thousand, and interest and dividend income from other financial institutions decreased $96 thousand. The increase in interest income was due to a number of factors, including a higher average yield across most interest-earning asset categories and changes in the interest-earning asset mix, partially offset by lower average balances of loans and debt securities. Additionally, the previous quarter included the reversal of a nonaccrual loan's interest income of $168 thousand for which there was no similar activity in the current quarter. Average total interest-earning assets decreased $26.1 million, the result of a $26.4 million decrease in average total loans, a $6.6 million decrease in average deposits in other financial institutions, and a $3.0 million decrease in average total debt securities, partially offset by a $9.3 million increase in average Fed funds sold/resale agreements and a $679 thousand increase in average restricted stock investments and other bank stock. The increase in interest expense for the second quarter of 2024 was primarily due to a $393 thousand increase in interest expense on interest-bearing deposits, the result of a $10.3 million increase in average interest-bearing deposits, coupled with a 9 basis point increase in average interest-bearing deposit costs, partially offset by a $321 thousand decrease in interest expense on Federal Home Loan Bank ("FHLB") borrowings, the result of a $23.2 million decrease in average FHLB borrowings in the second quarter of 2024.

Current wording

Net interest income for the third quarter of 2024 was $36.9 million, compared with $21.0 million in the prior quarter. The increase in net interest income was primarily due to a $22.3 million increase in total interest and dividend income, partially offset by a $6.3 million increase in total interest expense in the third quarter of 2024 as compared to the prior quarter. The increase in interest income and interest expense primarily relates to increases in total average interest-earning assets and total interest-bearing liabilities from the Merger during the quarter. During the third quarter of 2024, loan interest income increased $18.5 million, of which $4.1 million was related to accretion income from the net purchase accounting discounts on acquired loans, total debt securities income increased $458 thousand, and interest and dividend income from other financial institutions decreased $3.3 million. The increase in interest income was primarily driven by the mix of interest-earning assets added by the Merger and the impact of the accretion and amortization of fair value marks. Average total interest-earning assets increased $1.17 billion, the result of a $900.7 million increase in average total loans, a $114.2 million increase in average deposits in other financial institutions, a $25.1 million increase in average total debt securities, a $124.1 million increase in average Fed funds sold/resale agreements and a $7.5 million increase in average restricted stock investments and other bank stock. The increase in interest expense for the third quarter of 2024 was primarily due to a $6.0 million increase in interest expense on interest-bearing deposits, the result of a $763.7 million increase in average interest-bearing deposits, coupled with a $34.3 million increase in average subordinated debt, partially offset by a 6 basis point decrease in average interest-bearing deposit costs and a $378 thousand decrease in interest expense on Federal Home Loan Bank (“FHLB”) borrowings, the result of a $26.8 million decrease in average FHLB borrowings in the third quarter of 2024.

Previous wording

Net interest margin for the second quarter of 2024 was 3.94%, compared with 3.80% in the prior quarter. The increase was primarily related to an 18 basis point increase in the total interest-earning assets yield, partially offset by a 4 basis point increase in the cost of funds. The yield on total average earning assets in the second quarter of 2024 was 5.97%, compared with 5.79% in the prior quarter. The yield on average total loans in the second quarter of 2024 was 6.21%, an increase of 19 basis points from 6.02% in the prior quarter. The yield on average total loans in the prior quarter included the reversal of nonaccrual loan interest, which decreased the overall loan yield by 4 basis points in the first quarter of 2024. There was no significant reversal of interest income in the second quarter of 2024.

Current wording

Net interest margin for the third quarter of 2024 was 4.43%, compared with 3.94% in the prior quarter. The increase was primarily related to a 52 basis point increase in the total interest-earning assets yield, coupled with a 2 basis point decrease in the cost of funds. The yield on total average earning assets in the third quarter of 2024 was 6.49%, compared with 5.97% in the prior quarter. The yield on average total loans in the third quarter of 2024 was 6.79%, an increase of 58 basis points from 6.21% in the prior quarter. Accretion income from the net purchase accounting discounts on acquired CALB loans was $4.1 million and the related amortization expense impact on interest expense was $278 thousand, which increased the net interest margin by 46 basis points in the third quarter of 2024. Accretion income from the net purchase accounting discounts on acquired CALB loans increased the yield on average total loans by 59 basis points in the third quarter of 2024.

Previous wording

Average total borrowings decreased $23.2 million to $45.3 million for the second quarter of 2024, primarily due to a decrease of $23.2 million in average FHLB borrowings during the second quarter of 2024. The average cost of total borrowings was 5.84% for the second quarter of 2024, up from 5.75% in the prior quarter.

Current wording

Average total borrowings increased $7.6 million to $52.9 million for the third quarter of 2024, primarily due to an increase of $34.3 million in average subordinated debt from the $50.8 million in fair value of subordinated debt acquired in the Merger, partially offset by a decrease of $26.8 million in average FHLB borrowings during the third quarter of 2024. The average cost of total borrowings was 7.71% for the third quarter of 2024, up from 5.84% in the prior quarter.

Previous wording

Net interest income for the three months ended June 30, 2024 was $21.0 million, compared to $23.4 million for the three months ended June 30, 2023. The $2.4 million decrease in net interest income was due to higher average balances and costs of interest-bearing liabilities, partially offset by higher yields on interest-earning assets.

Current wording

Net interest income for the three months ended September 30, 2024 was $36.9 million, compared to $23.3 million for the three months ended September 30, 2023. The increase in interest income primarily relates to increases in total average interest-earning assets due to the Merger during the quarter. The $13.7 million increase in net interest income was due to higher average balances and yields on interest-earning assets, partially offset by higher average balances and costs of interest-bearing liabilities.

Previous wording

Net interest margin for the three months ended June 30, 2024 was 3.94%, compared with 4.36% for the same 2023 period. The 42 basis point decrease was primarily related to an 83 basis point increase in the cost of funds, partially offset by a 33 basis point increase in the total average interest-earning assets yield resulting from higher market interest rates and a change in our average interest-earning asset mix. The yield on total average earning assets during the three months ended June 30, 2024 was 5.97%, compared with 5.64% for the same 2023 period. The yield on average loans during the three months ended June 30, 2024 was 6.21%, an increase of 30 basis points from 5.91% for the same 2023 period.

Current wording

Net interest margin for the three months ended September 30, 2024 was 4.43%, compared with 4.23% for the same 2023 period. The 20 basis point increase was primarily related to a 77 basis point increase in the total average interest-earning assets yield resulting from higher market interest rates, accretion income from the net purchase accounting discounts on acquired loans and a change in our average interest-earning asset mix, partially offset by a 57 basis point increase in the cost of funds. The yield on total average earning assets during the three months ended September 30, 2024 was 6.49%, compared with 5.72% for the same 2023 period. The yield on average loans during the three months ended September 30, 2024 was 6.79%, an increase of 82 basis points from 5.97% for the same 2023 period. Accretion income from the net purchase accounting discounts on acquired loans was $4.1 million and the amortization expense impact on interest expense was $278 thousand, which increased the net interest margin by 46 basis points in the third quarter of 2024.

Previous wording

During the three months ended June 30, 2024, total interest income increased $1.6 million, comprised of a $1.1 million increase in total loan interest income, and a $246 thousand increase in total debt securities income, coupled with a $273 thousand increase interest and dividend income from other financial institutions and other interest-earning assets. The increase in interest income was due to a number of factors: a change in the interest-earning asset mix; and increases in yields on interest-earning assets resulting from increases in the target Fed fund rates. The increase in interest income was primarily due to a 33 basis point increase in yield on the interest-earning assets for the three months ended June 30, 2024 compared to the same 2023 period. Average interest-earning assets decreased $9.1 million, resulting primarily from a $17.2 million decrease in average total loans, partially offset by a $4.6 million increase in average deposits in other financial institutions, a $1.0 million increase in total average debt securities, a $1.1 million increase in average restricted stock investments and other bank stock, and a $1.4 million increase in average Fed fund sold/resale agreements.

Current wording

During the three months ended September 30, 2024, total interest income increased $22.6 million, comprised of a $18.6 million increase in total loan interest income, of which $4.1 million was related to accretion income from the net purchase accounting discounts on acquired loans, a $692 thousand increase in total debt securities income, and a $3.4 million increase interest and dividend income from other financial institutions and other interest-earning assets. The increase in interest income was primarily driven by the mix of interest-earning assets added by the Merger and the impact of the accretion and amortization of fair value loan marks. Average interest-earning assets increased $1.13 billion, resulting primarily from a $859.2 million increase in average total loans, a $111.2 million increase in average deposits in other financial institutions, a $31.9 million increase in total average debt securities, a $8.2 million increase in average restricted stock investments and other bank stock, and a $122.5 million increase in average Fed fund sold/resale agreements.

Previous wording

During the three months ended June 30, 2024, total interest expense increased by $4.0 million to $10.8 million, comprised primarily of a $3.9 million increase in interest on interest-bearing deposits due to repricing deposits in the higher interest rate environment and peer bank deposit competition, coupled with an increase in average interest-bearing liabilities balances between periods.

Current wording

During the three months ended September 30, 2024, total interest expense increased by $9.0 million to $17.2 million, comprised primarily of a $8.4 million increase in interest on interest-bearing deposits due primarily to an increase in average interest-bearing liabilities resulting from the Merger, coupled with repricing deposits due to peer bank deposit competition.

Previous wording

Average total borrowings increased $4.7 million to $45.3 million for the three months ended June 30, 2024 resulting from a $4.6 million increase in average FHLB advances. The average cost of total borrowings was 5.84% for the three months ended June 30, 2024, an 18 basis point increase from 5.66% for the same 2023 period.

Current wording

Average total borrowings increased $23.3 million to $52.9 million for the three months ended September 30, 2024 resulting from an increase of $34.4 million in average subordinated debt from the $50.8 million in fair value of subordinated debt acquired in the Merger, partially offset by a $11.1 million decrease in average FHLB advances. The average cost of total borrowings was 7.71% for the three months ended September 30, 2024, a 189 basis point increase from 5.82% for the same 2023 period.

Previous wording

Net interest income for the six months ended June 30, 2024 was $41.5 million, compared to $48.3 million for the six months ended June 30, 2023. The decrease was primarily due to a $3.6 million increase in total interest income, offset by a $10.5 million increase in total interest expense. During the six months ended June 30, 2024, total loan interest income increased $2.6 million, total debt securities income increased $547 thousand, and interest and dividend income from other financial institutions and other interest-earning assets increased $462 thousand. The increase in interest income was due to a number of factors: a change in the interest-earning asset mix and increases in yields on interest-earning assets resulting from increases in the target Fed fund rates. The increase in interest income was primarily due to a 30 basis point increase in yield on the interest-earning assets for the six months ended June 30, 2024 compared to the same 2023 period. Average interest-earning assets increased $8.9 million, resulting from a $5.2 million increase in total average debt securities and a $10.5 million increase in average deposits in other financial institutions, partially offset by a $1.1 million decrease in average total loans and a $7.0 million decrease in average Fed funds sold/resale agreements.

Current wording

Net interest income for the nine months ended September 30, 2024 was $78.4 million, compared to $71.6 million for the nine months ended September 30, 2023. The increase was primarily due to a $26.3 million increase in total interest income, offset by a $19.4 million increase in total interest expense. The increase in interest income and interest expense primarily relates to increases in total average interest-earning assets and total average interest-bearing liabilities from the Merger during the third quarter of 2024. During the nine months ended September 30, 2024, total loan interest income increased $21.2 million, of which $4.1 million was related to accretion income from the net purchase accounting discounts on acquired loans, total debt securities income increased $1.2 million, and interest and dividend income from other financial institutions and other interest-earning assets increased $3.9 million. The increase in interest income was primarily driven by the mix of interest-earning assets added by the Merger and the impact of the accretion and amortization of fair value marks. The increase in interest income was primarily due to higher average balances, due in part to the Merger, and a 52 basis point increase in yield on the interest-earning assets for the nine months ended September 30, 2024 compared to the same 2023 period. Average interest-earning assets increased $386.3 million, resulting from a $287.7 million increase in average total loans, a $14.2 million increase in total average debt securities, a $44.3 million increase in average deposits in other financial institutions, and a $36.5 million increase in average Fed funds sold/resale agreements.

Previous wording

During the six months ended June 30, 2024, total interest expense increased by $10.5 million to $21.6 million, comprised primarily of a $9.8 million increase in interest on average interest-bearing deposits due to increases in target Fed fund rates, coupled with the increase in average interest-bearing liabilities balances between periods.

Current wording

During the nine months ended September 30, 2024, total interest expense increased by $19.4 million to $38.8 million, comprised primarily of a $18.2 million increase in interest on average interest-bearing deposits due to increases related to interest-bearing deposits from the Merger, increases in target Fed fund rates, coupled with the increase in other average interest-bearing liabilities balances between periods.

Previous wording

Net interest margin for the six months ended June 30, 2024 was 3.87%, compared with 4.54% for the six months ended June 30, 2023. The decrease was primarily related to a 106 basis point increase in the cost of funds, partially offset by a 30 basis point increase in the total interest-earning assets yield resulting from higher market interest rates and a change in our interest-earning asset mix. The yield on total earning assets during the six months ended June 30, 2024 was 5.88%, compared with 5.58% for the six months ended June 30, 2023. The yield on average total loans during the six months ended June 30, 2024 was 6.11%, a 26 basis points increase from 5.85% for the six months ended June 30, 2023. The cost on total interest-bearing liabilities during the six months ended June 30, 2024 was 3.28%, a 129 basis points increase from 1.99% for the same 2023 period.

Current wording

Net interest margin for the nine months ended September 30, 2024 was 4.12%, compared with 4.43% for the nine months ended September 30, 2023. The decrease was primarily related to an 89 basis point increase in the cost of funds, partially offset by a 52 basis point increase in the total interest-earning assets yield resulting from higher market interest rates and a change in our interest-earning asset mix. The yield on total earning assets during the nine months ended September 30, 2024 was 6.15%, compared with 5.63% for the nine months ended September 30, 2023. The yield on average total loans during the nine months ended September 30, 2024 was 6.40%, a 51 basis point increase from 5.89% for the nine months ended September 30, 2023. The cost on total interest-bearing liabilities during the nine months ended September 30, 2024 was 3.27%, a 106 basis point increase from 2.21% for the same 2023 period. Accretion income from the net purchase accounting discounts on acquired loans was $4.1 million and the amortization expense impact on interest expense was $278 thousand, which increased the net interest margin by 20 basis points for the nine months ended September 30, 2024. Accretion income from the net purchase accounting discounts on acquired loans increased the yield on average total loans by 25 basis points for the nine months ended September 30, 2024.